Economics for Business: Analyzing Water Supply Monopoly in Australia

This essay examines the monopoly market structure of water supply in Australia, focusing on the Sydney Water Corporation. It defines monopoly as a market situation with a single producer, highlighting Sydney Water's dominance in supplying water to the Sydney region. The analysis covers characteristics of a monopoly, such as a single seller, restricted entry for new firms, long-run profit potential, lack of substitutes, and price-making power. The essay also discusses government interventions to regulate monopolies, protect consumer interests, and promote competition. It concludes that government policies are essential to curb high prices imposed by monopolists and ensure fair market practices, emphasizing the role of price capping, service quality regulation, and breaking up monopolies.

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Monopoly market structure of water supply in Australia
Introduction
The monopoly is such a market situation where there is a single producer who sells a
unique product by in the market. The producer in the monopoly market structure faces no
competition as he will be the only seller in the market. The market structure of monopoly is
such that they have full control over the supply of the product. In case of a monopoly market
structure the cross elasticity of the demand between the commodities of the monopolist and
the product of any other seller must be quite small in nature. The pure monopoly will only
exist when there is only single producer in the market. One of the organization in Australia
that exercises a monopoly power is the Sydney Water Corporation. The Sydney Water
Corporation has a monopoly over the supply of water within the region of Australia
(Australian Competition and Consumer Commission, 2018). The Sydney water corporation
is the Australia’s largest water utility which is present in Australia. It is known to have a
monopoly over the water supply in Sydney. The particular firm supplied for about 500 billion
litres of water over a year. Sydney water is also known to produce hydroelectricity from the
water for powering its plans wastewater plants. Sydney Water is a government owned
corporations constituted under the State Owned Corporations Act 1989 and operated under
the Sydney Water Act 1994 (Water Reuse., 2018).
Analysis
The Minister for Finance and services stated Sydney Destination of Plant monopoly
supplier of the non-rainfall dependent drinking water. The Sydney Water Corporation is one
of the largest water utility in Australia. It is known for supplying water, recycled water, waste
water along with storm water services serving over millions of people in the Sydney Basin.

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The objectives of the Sydney Water is to provide clean as well as safe drinking water, helping
to create a waster efficient city. The Sydney water also serves the consumers by developing a
safe and capable workforce.
The characteristics of the monopoly market includes
The single seller: The producer of the Sydney Water is the sole seller in the market
and the firm therefore has complete control on the output of the service provided. This is one
of the moist important characteristics of the monopoly market structure.
Restricted entry of the new firms: The monopoly situation in the market will only take
place when other firms will not be entering the industry. As no new firms are present in the
market, the Sydney Water Corporation will be turned as industry (Water Reuse., 2018).
When new firms will be entering in the market, there will be absence of any control of the
firm. It can be said that monopoly industry is essentially a single firm industry.
Profit in the long run: The monopolist firm will always be able to earn supernormal
profits in the long run since there is no fear of any competitive producer.
Lack of substitutes: The firms of the monopoly market structure sells such
commoditie4s which usually have no close substitutes. Therefore it can be said that the cross
elasticity of demand for such commodities zero.
Price maker: Since there is only one producer in the market, the organization will
become the price maker for the whole economy. Therefore the consumers have to accept the
price that had been set by the Sydney water as there is absence of any sellers and lack of
substitutes.
It can be said that that the firms that are in natural monopoly will be able to produce
goods at the lower cost compared to what other firms can produce. Sometimes, monopoly can

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be created by the government itself. The government created monopolies will be preventing
the firms from entering in to the market (Water Reuse., 2018).
` The government generally intervenes in the market structure in order to improve the
market infrastructure, improve information and the institutional infrastructure.
Figure 1Monopoly market structure
In case of monopolies they are usually incontestable and the firms also have no real
competition.
The role of the government interventions is to improve the market infrastructure,
improve information and also improve institutional infrastructure. The government will
regulate monopolies for protecting the interests of the consumers. The government will be
regulating monopolies with the help of price capping and preventing the growth of the
monopoly power. Regulating monopolies includes prevention of excess price, promote
competition and promote competition (Australian Competition and Consumer Commission.,

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2018). When there is absence of any kind of government regulation, the organization can put
prices above the competitive equilibrium. When the firm will be having any kind of
monopoly power, they will be having a very less incentive for offering a good quality service.
Conclusion
The government in some case might also want to break the power of monopoly since
the firm the firm can become sometimes become more powerful in nature. When there is
presence of government intervention there will be equal distribution of wealth and income in
order to improve the equality of the opportunity along with the equality of outcome.
Intervention can also overcome prolonged recessions and reduce the unemployment.
Government interventions and policies therefore help in curbing the high prices imposed by
the monopolist. Therefore it can be said that the government will try to regulate the power of
the monopolies in order to prevent rise in the price of the products, promote competition in
the market, improve the quality of the service and reduce the monopsony power. Government
can regulate the monopolies by price capping the regulators, regulating the quality of the
service and breaking up the monopoly.

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Reference list
Australian Competition and Consumer Commission. (2018). Retrieved from
https://www.accc.gov.au/
Water Reuse. (2018). Retrieved from https://books.google.co.in/